Single entity financial statements and management report of Drägerwerk AG & Co. KGaA AS OF DECEMBER 31, 2010 MANAGEMENT REPORT FINANCIAL STATEMENTS NOTES 1 CONTENTS Management report of Drägerwerk AG & Co. KGaA 2 Forward-looking statements 37 Single entity financial statements of Drägerwerk AG & Co. KGaA 39 Income statement of Drägerwerk AG & Co. KGaA from January 1 to December 31, 2010 39 Balance sheet of Drägerwerk AG & Co. KGaA as of December 31, 2010 40 Analysis of non-current assets of Drägerwerk AG & Co. KGaA 42 Notes to Drägerwerk AG & Co. KGaA single entity financial statements 2010 44 The Company’s Boards 70 Major direct and indirect shareholdings of Drägerwerk AG & Co. KGaA 76 Management compliance statement 81 2 IMPORTANT CHANGES IN FISCAL YEAR 2010 Management report of ting of Drägerwerk AG & Co. KGaA on May 8, 2009. The annual shareholders’ meeting had authorized Dräger - Drägerwerk AG & Co. KGaA werk Verwaltungs AG to increase the capital stock of the Company, with the approval of the Supervisory Board of the Company, through a single or multiple issue of new bearer common shares (no-par shares) in return for cash Important changes in fiscal year 2010 and/or deposits in kind by up to EUR 16,256,000.00 (approved capital). CAPITAL INCREASE On June 30, 2010, Drägerwerk AG & Co. KGaA increased The Company offered the new ordinary shares to the sha - its capital stock by EUR 9,753,600 to EUR 42,265,600 by reholders at a ratio of 10:3 at a subscription price of issuing 3,810,000 new bearer common shares (no-par EUR 27.50 each by way of an indirect subscription right shares) with a share of EUR 2.56 each in capital stock (Sec. 186 [5] AktG [“Aktiengesetz”: German Stock Corpo - (new common shares) with full dividend rights as from ration Act]). Subscription rights for preferred shares January 1, 2010, in return for cash. Net proceeds amoun - were traded on the regulated market (floor trading) at ted to around EUR 100 million after deducting trans - Frankfurt Stock Exchange between June 18, 2010 and action costs June 28, 2010, 24:00 hours. In the subscription period from June 17, 2010, to June 30, 2010, all previous sub - Drägerwerk AG & Co. KGaA implemented the transaction scription rights for common shares (1,905,000) as well as in two stages: The preplacement of existing common sha - 1,886,037 of a total 1,905,000 subscription rights for res with institutional investors was followed by a capital preferred shares were exercised. The subscription rate increase with subscription rights for all shareholders. therefore totals 99.5 percent. The 18,963 unsubscribed On June 15, 2010, the mandated banks Goldman Sachs new common shares were sold for EUR 41.00 each on International, London, Great Britain, and M.M.Warburg July 2, 2010 (rump placement) & CO, Hamburg, Germany assumed the contractual obli - gation – subject to certain conditions and rights of with - Frankfurt Stock Exchange admitted the existing common drawal – to implement the capital increase and to take shares to the regulated market (Prime Standard) on June over the new common shares (hard underwriting). 18, 2010, where they were quoted for the first time on June 21, 2010. After the capital increase had been enter - For the preplacement, the banks used a so-called accele - ed in the commercial register on June 30, 2010, Frank - rated bookbuilt offering (ABO) for selling a total of furt Stock Exchange admitted the new common shares to 1,039,200 existing common shares without subscription the regulated market (Prime Standard) on July 2, 2010, rights to institutional investors at EUR 41.00 each (ABO where they were quoted for the first time on July 05, price). These common shares were previously held by Dr. 2010. All common shares as well as all preferred shares Heinrich Dräger GmbH. of Drägerwerk AG & Co. KGaA have therefore been listed for trading on the stock exchange. The general partner of Drägerwerk AG & Co. KGaA, Drägerwerk Verwaltungs AG, used the authorization The capital increase also has an effect with regard to granted by resolution of the annual shareholders’ mee - participation certificates. If the Company carries out a MANAGEMENT REPORT FINANCIAL STATEMENTS NOTES 3 capital increase with subscription rights for sharehol - execution date is always the last day of a month (or the ders, holders of participation certificates of all three next business day, should this date be no business day), series are entitled to comparable subscription rights. whereby a minimum of five working days must elapse Holders of participation certificates have the right to between the approval date and the end of the month. For acquire further participation certificates with subscrip - this reason, the transaction was executed on April 30, tion rights similar to those of the capital increase. The 2010. As previously explained in the annual report 2009, participation capital has to be increased accordingly. The Dräger Group was already entitled to the acquired shares subscription right and increase of participation capital on December 31, 2009, from a financial point of view. are subject to the approval of the Company’s annual sha - reholders’ meeting as well as the exclusion or limitation The purchase price of the 25 percent share in Dräger of any other legal subscription rights, if this is necessary. Medical AG & Co. KG comprised the following compo - In accordance with the terms and conditions of partici - nents: pation certificates, if the annual shareholders’ meeting – a cash settled component of EUR 175 million, does not approve of participation certificate holders – a vendor note of EUR 68.5 million divided into three exercising their subscription rights or if other legal sub - tranches of EUR 18.75 million (tranche I), scription rights cannot be excluded or limited to the EUR 40.0 million (tranche II) and EUR 9.75 million required extent, the company must pay a cash compensa - (tranche III), and tion to the amount of the loss it deems participation – a variable option component. certificate holders would incur through the capital increase in its reasonable discretion (Sec. 315 BGB Drägerwerk AG & Co. KGaA repaid the cash settled com - [“Bürgerliches Gesetzbuch”: German Civil Code]). The ponent on the effective date as well as tranches I and II of Company recognized EUR 7.8 million in provisions for the vendor note to the total amount of EUR 58.75 million this contingency in 2010. plus interest early on July 20, 2010, from the inflow of cash and cash equivalents provided by the capital increase. In addition, the annual shareholders’ meeting on May 7, 2010, resolved to conditionally increase the Company’s The variable option was originally a cash settled option. capital stock up to EUR 3,200,000 by issuing up to In order to replace this, Dräger issued warrant bonds 1,250,000 new no-par preferred bearer shares (no-par with option rights guaranteed in the form of warrants to shares) in return for cash and/or contributions in kind the total nominal value of EUR 1.25 million to Siemens (conditional capital). The conditional capital was used on August 30, 2010. The option rights entitle their for issuing the option rights to Siemens. holders to acquire a total of 1.25 million preferred sha - res. Drägerwerk AG & Co. KGaA therefore implemented PURCHASE OF THE 25 PERCENT SHARE IN the resolution of the annual shareholders’ meeting on DRÄGER MEDICAL AG & CO. KG FROM SIEMENS May 7, 2010, which was approved by the separate On March 26, 2010, the European Commission approved meeting of preferred shareholders. the purchase of all shares in Siemens Medical Holding GmbH. The only condition for closing according to the The option rights had a strike price of EUR 64.12 on purchase agreement signed on December 29, 2009, has December 31, 2010 and expire on April 30, 2015. They are therefore been met. This agreement stipulates that the divided into 25 individual options, entitling holders to 4 IMPORTANT CHANGES IN FISCAL YEAR 2010 | DIVIDEND PROPOSAL | BUSINESS ACTIVITIES acquire 50,000 preferred shares each. If one of the ly improved its cost structure and at the same time inves - options was exercised by its holder, The Company would ted in future growth. Dräger Group exceeded its original issue new preferred shares from conditional capital. If all goal: achieving a positive, sustainable effect on earnings options were exercised, Drägerwerk AG & Co. KGaA of EUR 100 million measured against the net sales, cost would receive EUR 80.15 million for issuing 1.25 million structure and exchange rates in 2008. But Dräger Group new preferred shares on the balance sheet date. increased its profitability by EUR 107.3 million before implementation costs in 2010 – one year earlier than As the option rights issued to Siemens had a higher fair planned. value than the original cash settled option, Drägerwerk AG & Co. KGaA received a EUR 8.5 million reduction on The extremely positive development of the turnaround tranche III of the vendor note from Siemens, as agreed. program continued in the fourth quarter of 2010. Com - Siemens paid the nominal value of the warrant bonds by pared to the same period on the previous year, Dräger offsetting it against the claim from tranche III of the ven - Group realized additional earnings (cost savings and dor note. On September 30, 2010, the Company repaid increased efficiency of services) of EUR 4.4 million (4th the warrant bonds at their nominal value plus interest to quarter 2009: EUR 33.7 million compared to 4th quarter Siemens. With this transaction, Dräger has now fully 2008). Without taking into account the one-off payment repaid all liabilities arising from the acquisition of the to all employees of German group companies in return 25 percent Siemens share in Dräger Medical AG & Co.